RMI 2302 Nyce Module 2 Latest Update Graded A+

RMI 2302 Nyce Module 2 Latest Update Graded A+ A Scientific View of Risk Probability of a person suffering an adverse effect from some activity or exposure over a given period of time/involvement. -ADDS A TIME ELEMENT Risk Reduction and Public Policy Risk Reduction has costs (both monetary and non- monetary) Requires putting a value on human life How much are you worth? Parents? Grandparents? How do you balance risk/reward? Can drive highway deaths to near zero (reduce speed limit to 5 MPH) How much are we spending on TSA? How many lives have been saved? Risk and Return Trade-off The riskiness of an innovation depends on the choices people make. The more informed their choices, the lower the risk will be. Innovations to make us feel safer often lead to us changing our habits because we feel safer. This may lead to additional risk. Five Rules of Thumb to Minimize Risk Recognize that you need a model. Acknowledge your model's limitations. Expect the unexpected. Understand use and user. Check the infrastructure. Recognize That You Need a Model Decision about risk and return, when you adopt a new product/technology, is informed by a mental model. A mental model may be an oversimplification. Additional variables and their relationships between one another make the model more complicated (gathering data, establishing paramaters, determining interaction) and more accurate Models that people apply to real-life situations often exist semiconsciously. Mathematical Modeling Allows more precision than human cognition Humans can set mathematical models to execute on their behalf based on some specific guidelines The more factors you incorporate, the better your assessment will be of the risks you incur in deciding whether and how to adopt a particular innovation. Acknowledge Your Model's Limitations Incorrect versus Incomplete Models Incorrect Model a model whose internal logic or underlying assumptions are themselves manifestly wrong. The only proper thing to do with an incorrect model is to stop using it. Incomplete Model characteristic shared by all models; basic model doesn't need to be unlearned, but added to. Until a fundamental violation or error in assumptions is found within a model, the logical course if to refine rather than reject. Expect the Unexpected Some Factors Will be Overlooked This is particularly true when an innovation interacts with other changes in the environment that in and of themselves are unrelated and thus not recognized as risk factors. Recent financial crisis was caused when these three factors occurred simultaneously Efficient mortgage refinancing market Low interest rates Rising house prices What happens when we use the same model? Systemic risk Understand the Use and the User Use and User Model's utility depends not just on the model itself, but on who is using it and what they're using it for Models are meaningfully evaluated only as a triplet: model, application, and user Important characteristics of model: Workings of model are transparent Consistently applied Results can be reproduced and verified by others Check the Infrastructure Consequences of Innovation Benefits/risks in large are determined by the infrastructure into which the innovation is introduced Pace of innovations in some industries is very high, so changing infrastructure to accommodate every innovation that comes along